A new report from research group Greenwich Associates says that the focus of e-trading efforts in financial markets is switching away from mature markets like FX and into high yield bonds and cash equities.
In its latest report, From FX to High-Yield Bonds: Global Electronic Trading Update, Greenwich’s head of research, Kevin McPartland, says that the main action has shifted to new frontiers like high-yield bonds and those changing at the hands of new regulations like cash equities, where the impacts of MiFID II and advances in automated trading technology have triggered a surge in e-trading.
Over the past two years, Greenwich says top-line growth in e-trading has slowed from revolutionary to evolutionary, due mainly to the fact that the world’s most electronic markets like FX and index CDS are “likely near their e-trading limits for current technology”. The company does add, however, that in the coming years these markets will see more innovation, as liquidity venues and market participants improve upon existing processes.
The company’s research shows there are still pockets of growth and high-yield corporate bonds, however, where the share of total global institutional trading volume executed electronically jumped to 14% in 2017 from just 9% in 2015.
“Some of the most creative thinking in the capital markets is happening in high yield, and the market is starting to see the benefits,” says McPartland.
The report also finds that e-trading grew to 36% of global institutional cash equities trading volume in 2017 from just 32% in 2015. “After nearly a decade of little change in execution channel selection, equity markets are seeing e-trading via execution algorithms, smart order routers and direct market access tick up meaningfully,” says McPartland, adding that MiFID II is likely a big component of the move, and one that is “still playing out”.